ROLE OF GOVERNMENT

In spite of its reputation for having liberal, noninterventionist
economic policies, the Ivoirian government played a pivotal role in the
domestic economy. Acting primarily through the Ministry of Planning and
the Ministry of Finance, the government directed fiscal and monetary
strategies over the long term and intervened in the short term in
response to changing market conditions. The Ministry of Planning was
responsible for coordinating long-term development projects, while the
Ministry of Finance was responsible for financing annual investment. The
technical ministries, such as the Ministry of Mining, the Ministry of
Trade, and the Ministry of Industry, were responsible for preparing and
implementing projects. The Ministry of Planning played the central role.
It mediated between the technical ministries and the public enterprises
on the one hand and the Ministry of Finance and the government (in its
role as the formulator of economic objectives) on the other hand. The
Ministry of Finance translated the government's policy objectives into a
set of long-term output and investment targets and an aggregate
investment package. The Ministry of Planning and the technical
ministries then used the guidelines to undertake those projects that
were deemed feasible and would most contribute to achieving the plan's
output and investment targets.

Beginning in 1960, the Ministry of Planning prepared a series of
ten-year projections. Subsequently, these were replaced by a series of
five-year plans that had built into them a three-year
"rolling" program called the Loi Programme. The five-year
plans formulated the overall objectives, set priorities, and provided a
macroeconomic framework for the country's development. The threeyear
overlapping Loi Programmes examined individual projects, taking into
account progress toward implementation, annual changes in costs, and
political impact.

Public Investment

In addition to its planning role, the government was the largest
single investor in the economy. Following independence, the government
embarked on an ambitious capital spending program. Much of the capital
for government intervention came from the CSSPPA, which fixed producer
prices, operated a reserve price stabilization fund, and extracted
profits for the state. Much of this investment went toward developing
infrastructure and was one of the state's more positive economic
contributions in the 1960s.

By the 1970s, although there was no official change of economic
policy, the state intervened more directly in the economy, primarily
through the creation of parastatals. This surge in the number of
parastatals reflected the government's desire to stimulate growth in
those areas where the private sector was considered insufficiently
active, to create employment for Ivoirians, and to encourage Ivoirians
to invest locally. In the case of agricultural parastatals, the state
wanted to lessen income disparities between the north and the south,
decrease food imports, provide rural employment, and diminish the
importance of foreign investment in agriculture. In some instances,
social or political objectives superseded the profit motive, as appears
to have been the case with parastatals like the Bandama Valley Authority
(Autorité du Vallée du Bandama--AVB), which promoted regional
development, and the Sugar Development Company (Société de Développement
Sucrier--SODESUCRE), which was also responsible for creating jobs and
building schools and medical clinics in the savanna region.

All of the parastatals enjoyed relative financial autonomy, although
their technical and financial operations were in theory supervised by
the government. In fact, there was often little supervision by, or
coordination of activities with, other government agencies, perhaps
reflecting the fact that top-level managers of some parastatals were
often politically well connected. In many instances, the parastatals
withheld or otherwise could not produce crucial financial data for
planners. Given the absence of governmental oversight and the sometimes
vague social and political objectives of the parastatals, they performed
badly and in some cases--notably the housing sector--were rife with
fraud.

In spite of these shortcomings--or perhaps because of them--the
government support of parastatals steadily increased. By 1974 it
amounted to more than half of the entire investment budget. Over the
same fourteen years, the proportion of investment spending covered by
net public savings fell to 37 percent. This imbalance forced the
government to borrow extensively from foreign sources to maintain an
even level of investment and growth. Between 1965 and 1975, foreign
loans rose from 41 percent to 65 percent of investment in parastatals.
Moreover, the outstanding debt figures of the public enterprises and the
amount of foreign borrowing, which in theory should have been cleared by
the National Amortization Fund (Caisse Autonome d'Amortissement--CAA),
were not disclosed until an end-of-year report. This process effectively
precluded government attempts to control parastatal finances.

Budget

Public spending was handled under two different budgets: the Ordinary
Budget (Budget Ordinnaire) for current government expenditures, which
were generally covered by domestic revenues, and the Special Investment
and Capital Equipment Budget (Budget Special d'Investissement et
d'Equipement--BSIE), which partly depended on foreign investment. The
BSIE had two parts: the BSIETreasury (BSIE-Tresor or BSIE-T), which was
financed by surpluses from the Ordinary Budget, levies on business
profits and farm incomes, and borrowing through bonds issued by the CAA;
and the BSIE-CAA, which was funded by foreign borrowing.

The size of each budget reflected the state of the economy. The
Ordinary Budget grew by an average of more than 20 percent from 1976 to
1980 and then by an average of about 11 percent per year in 1980, 1981,
and 1982. By 1983, however, the deteriorating economy and consequent
decline in tax receipts prompted the government to implement a series of
austerity measures. Cuts were initially limited to the BSIE, which fell
from CFA F277.6 billion in 1980 to CFA F239.1 billion in 1984 and then
fell dramatically to 101.8 billion in 1985. In 1984 the government cut
the Ordinary Budget for the first time, by 1.5 percent from the previous
year. The government reduced the number of foreign technical assistants,
froze civil service salaries, and sold one-quarter of the official fleet
of 12,000 automobiles.

In 1986, after three years of severe austerity, higher commodity
prices increased revenues and, in turn, allowed both budgets to expand.
Budgeted expenses rose by 8.6 percent, with most of the increase in the
BSIE, where allocations were increased by 13.7 percent. More than a
third of these allocations went toward a road building plan cofinanced
by the World Bank. Agricultural diversification was the second largest
beneficiary. A 3.7 percent increase in the Ordinary Budget again
permitted civil service promotions following a protracted wage and
hiring freeze.

The period of budgetary expansion, however, was brief. In 1987 coffee
and cocoa prices again dropped, resulting in a 5.2 percent cut in the
1987 BSIE and an additional 19.8 percent cut in the 1988 BSIE. For the
second year in a row, the BSIE did not receive any funds from the
CSSPPA, the agency that marketed the bulk of Côte d'Ivoire's coffee and
cocoa. In 1987 the largest share of BSIE funding, amounting to CFA F85.8
billion, came from multilateral donor agencies (CFA F44 billion).
Bilateral creditors--including France, Japan, Britain, the United
States, and the Federal Republic of Germany (West Germany)--provided CFA
F16.2 billion, and commercial creditors provided CFA F25.6 billion.
Meanwhile, domestically generated revenue for the BSIE was set to
increase from the 1987 level of CFA F38.8 billion to CFA F 57.8 billion
in 1988. The increase, however, represented only the inclusion of funds
previously classified as extrabudgetary.

The 1987 overall budget increased by a modest 4.8 percent and the
1988 budget by 2.6 percent. These increases were primarily the result of
an increase in revenue from taxes on income, imports, fuel, agricultural
products, and municipality receipts. But because of an annual inflation
rate of approximately 7 percent, it was expected that real spending in
1988 would fall. Debt rescheduling agreements did not affect the budget
because the government considered debt service to be outside the main
budget calculation.

Banking and Finance

Côte d'Ivoire's banking system developed during the colonial period
as an extension of the French financial and banking systems. In 1962 Côte
d'Ivoire, along with seven other francophone nations, became a member of
the West African Monetary Union (Union Monétaire Ouest Africain--UMOA).
The UMOA established the Central Bank of West African States (Banque
Centrale des Etats de l'Afrique de l'Ouest--BCEAO), which issued the
African Financial Community (Communauté Financière Africaine) franc
(CFA F), the unit of currency for the member states, and established
policies governing interest rates. Also in 1962, France and the members
of the UMOA signed an agreement that guaranteed the convertibility of
the CFA F to French francs and established operations accounts for each
country with the French treasury in order to centralize their reserves.
The signatories also agreed to the free circulation of capital within
the union. Since 1962 the UMOA has modified its system gradually to
grant greater monetary autonomy to the African member states. For
example, the UMOA reduced the share of French votes on the board of
directors from one-third to one-seventh, transferred the headquarters of
the BCEAO from Paris to Dakar, Senegal, and in 1975 introduced changes
to increase the managerial presence of Africans in their national
economies and to help the member states make better use of their
resources.

Domestically, Côte d'Ivoire had the second most sophisticated
banking system in sub-Saharan Africa, after South Africa. In 1988 it had
twenty-one credit and loan banks (including fifteen commercial banks and
six specialized credit banks), nine foreign bank offices with limited
activity, sixteen registered credit or leasing institutions, and seven
organization similar to credit unions. More than half of bank ownership
remained in foreign control: six of the fifteen commercial banks were
branches of foreign banks (including three American institutions). Of
the fifteen banks with some domestic ownership, Ivoirians (publicly or
privately) owned no more than 48.4 percent.

In the late 1980s, the banking system was especially hard hit by the
fall in cocoa earnings and the subsequent liquidity crisis. In 1987 the
Ivoirian Bank for Construction and Public Works (Banque Ivoirienne de
Construction et de Travaux Publics--BICT) and the National Savings and
Loan Bank (Banque Nationale d'Epargne et Credit--BNEC) were closed by
authorities. In early 1988, the National Agricultural Development Bank
(Banque Nationale pour le Développement Agricole--BNDA), which provided
credit to peasant farmers, and the Côte d'Ivoire Credit Bank (Crédit
de la Côte d'Ivoire--CCI), an industrial development bank, suspended
operations. In the case of the BNDA, a politically well connected
borrower who owed the bank as much as US$78.9 million was unable to
account for the funds he had borrowed.